Monthly Archives: October 2018

Protecting those that matter

Many of us spend time planning our future with the intention that our plans will come good. But making sure that you and your family can cope if you fall ill or die prematurely is something we can too easily put to one side. In particular, a recent study identified that financial protection is something that millions of fathers in the UK, and their families, could benefit from.

More than half (58%) of men in the UK with dependent children have no life insurance, meaning that just over 4.5 million dads[1] are leaving their families in a precarious situation if the unforeseen were to happen. Worryingly, this has increased by five percentage points compared with 2017, a year-on-year increase of around 542,000 individuals[2].

Financial hardship

Despite a fifth (20%) of dads admitting their household wouldn’t survive financially if they lost their income due to long-term illness, only 18% have a critical illness policy, leaving many more millions at risk of financial hardship if they were to become seriously ill.

Critical illness insurance – this doesn’t usually pay out if you pass away, so it’s not always suitable if you want to make sure your family are provided for after you’ve gone. This is where life insurance comes in.  However, this type of insurance covers serious illnesses listed within a policy. If you get one of these illnesses, a critical illness policy will pay out a tax-free, one-off payment. This can help pay for your mortgage, rent, debts, or alterations to your home, such as wheelchair access, should you need it.

Life insurance – this insurance usually only pays out if you pass away. It’s designed to help your family maintain their lifestyle after you’ve gone, for example, to pay off a mortgage or other loans and provide for children’s university fees.

Many insurers will offer both types of cover combined.

No savings

If they were unable to work due to serious illness, 16% of fathers say they could only pay their household bills for a minimum of three months. More than two fifths (45%) say they’d have to dip into their savings to manage financially, but 17% admit that their savings would last for a maximum of just three months, and 12% say they have no savings at all.

On top of this, many fathers are leaving themselves and their families unprepared for other aspects of illness or bereavement. 16% of them aren’t sure who would take care of them if they fell ill, and more than two fifths (42%) don’t have the protection of a Will, power of attorney, guardianship or trust arrangement in place for their families.

Risky position

This is an especially risky position for the two thirds (66%) of UK fathers who are the main breadwinner in the family, and it’s clear that many are in lack of a ‘Plan B’.

Many fathers don’t consider having insurance as a necessity, with 16% of those without saying they don’t see critical illness cover as a financial priority, and 20% saying they don’t think they need it. The value of protection, however, is to provide long-term peace of mind about having financial security in place for your dependents.

Seek advice

Life is full of uncertainties – and while we insure cars, houses and even holiday arrangements, when it comes to ourselves and our family, often insurance is overlooked and undervalued. The simple truth is we can get too ill to carry on working or tragically die too soon, either through serious illness or accident. These events are random, and they can potentially affect us all.  

Recent changes to bereavement benefits, and their continued unavailability to those in cohabiting relationships, mean that it’s more important than ever for fathers to review their financial protection needs and seek advice to make sure their household is covered.

Unforeseen circumstance

 The impact of losing the family breadwinner can be devastating – missed mortgage repayments, savings depleted, your home being sold, your family’s standard of living eroded, with stress and worry all too evident.

 Whether it is your family or other loved ones, it’s essential to make sure that the people and things that matter to you are taken care of – whatever life throws at you.

Creating a durable plan for the future

We understand that expert advice on financial matters is invaluable in creating a durable plan for the future. To discuss what’s best for you and your family if the unforeseen were to happen, contact us so we can find the solution that’s right for you.

Source data:

All figures, unless otherwise stated, are from Opinium Research. The survey was conducted online between 5 and 12 April 2018, with a sample of 5,022 nationally representative UK adults.

[1] Percentage of adult population that are fathers with dependents = 762/5022 = 15.17%; 15.17% of adult population of 51,767,000 = 7,854,730 million; 58% of these don’t have cover so 4,545,848 million

[2] Percentage of adult population that are fathers with dependents = 735/5077 = 14.48%; 14.48% of adult population of 51,767,000 = 7,495,861 million; 53% of these don’t have cover so 4,003,721. Difference of 542,127 compared with 2017

Warnings:

Protection plans usually have no cash in value at any time and will cease at the end of the term.  If premiums are not maintained, the cover will lapse. 

Critical illness plans may not cover all the definitions of a critical illness.  The definitions vary between providers and will be described in the key features and policy documents if you go ahead with a plan.  

 

 

4 Things to Consider Before Financially Bailing Out Your Adult Children

I read an article recently and whilst it was based upon research undertaken in the US, I suspect there are likely to be similarities in the UK which is why I found the article thought-provoking.

The article suggested that according to a recent American study by TD Ameritrade, 25% of baby boomers are supporting their family members financially¹, with support to adult children averaging out to $10,000 per year. That’s $10,000 per year that parents aren’t saving.

Can your retirement afford that kind of generosity?

If you fall short of your retirement goals, is the adult you’re bailing out going to bail you out during your golden years?

So, before you write your ‘struggling young adult’ another big cheque, ask yourself these four key questions:

1. What, specifically, is this money for?

The key word here is SPECIFICALLY.

Many parents tend to err on the side of protecting their child’s feelings when weighing financial support. We know asking for money can be embarrassing, and we don’t want to deepen that embarrassment. Or we’re worried that if we ask too many questions the child will become frustrated and hide serious problems from us going forward.

These are understandable concerns. But it’s also important that you understand whether your child needs support because of something beyond his or her control (a car accident, serious health issues, unexpected job loss) or because they’re struggling with basic adult responsibilities. If your child is making poor budgeting decisions or settling for underemployment, you may be throwing good money after bad.

Be tactful but get to the root problem before you decide if your money is the best solution.

2. What is the real cost to me?

Many parents are already helping their adult children more than they realise.

For example, you might not think much of funding your adult children’s mobile phone or piggyback on the Netflix subscription. After all, it’s only £30 a month, right?

But how long have you been giving your child that monthly free pass? Years? You can also set time limits. For example, tell your child they have their mobile phone bill funded until age 25 or until they get married, whichever comes first.

Are you helping with larger monthly expenses, like car payments? When will it finally be time to pull the plug?

Get it all down on paper. Make a spreadsheet that accounts for the financial support you’re already giving your child, large and small. Seeing how even small expenses accumulate over time will be eye-opening for both of you and help inform a good decision.

3. What are the terms of the bailout?

This is another area that parents tend to tiptoe around because they’re afraid of insulting their children. But do you know of any bank that’s going to loan your kids money indefinitely, charge no interest, and ask for no repayment? Then why should your money be subject to such lousy terms?

Your children have to understand that your generosity is not open-ended, especially as you near retirement age. You’ve probably made many sacrifices for them already. You should not sacrifice your financial security or the nest egg that is meant to support you in retirement.
If your children want you to “be the bank,” then you have every right to act like one. Set clear terms in writing, including a repayment schedule. In more serious cases, you might want to bring us a copy of this agreement so that we can include it in your estate plan.

4. How else can I help?

It’s very likely that your child spent 11 or more years in school without learning a single thing about managing money. Financial literacy just isn’t taught in schools. This knowledge gap could be a big reason your young adult is struggling.

A BMO Wealth Institute survey found that two-third of parents give money to adult children when a sudden need arises². Does your child need money suddenly because he or she doesn’t know how to budget? Help find that balance between covering current expenses and contributing to savings and investment accounts.

Housing and transport costs can be a shock to recent college leavers. You could help your child negotiate a car lease. You might help a child who’s already chasing after the Joneses by counselling against a rash home purchase that will stretch his or her finances thin.
Introducing your underemployed child to some of your professional connections might lead to a significant career upgrade.
One key connection you should be sure to tap: your financial adviser! We’re always happy to help our clients’ adult children get on their feet. We consider this a service to our clients because we know that the less you’re worried about supporting your children, the more secure your own retirement goals will be.

Sources

¹ https://s1.q4cdn.com/959385532/files/doc_downloads/research/TDA-Financial-Support-Study-2015.pdf

² https://wealth.bmoharris.com/media/resource_pdf/bmowi-bank-of-mom-and-dad.pdf

Empower Yourself by Recognising Your Freedom to Choose

“When we are no longer able to change a situation, we are challenged to change ourselves.”
– Viktor Frank

We may not always be able to control the circumstances of a given situation we find ourselves in, but we always have the freedom to choose how we respond. The choice we make – and how we make it – often determines how well we survive the situation, and if we go on to thrive.
If challenges in your family life, your career, or your finances are making you feel powerless, try approaching the challenge from a new angle.

This simple three-step process can put you back in touch with your freedom to choose how and why you live your life.

1. Consider your reaction.
Take a step back from the problem. Take a breath. Take a walk. Pour yourself a cup of coffee.

By creating some space, you’ll be able to ask yourself, “Why am I reacting the way that I’m reacting? Is there a better perspective I could be taking? Am I letting past experiences influence my reaction for better? For worse?”

When we feel overwhelmed by a challenge, we often fall back on established patterns in our thinking. Often these default reactions are negative. If we’re arguing with our spouse, we might replay past arguments in the back of our heads. Financial difficulty might trigger memories of our parents struggling with money as we were growing up.

Identifying the negative experiences and perspectives that create our immediate reactions to challenges can help us find ways to create more positive and empowering reactions.

2. Consider your purpose.
Instead of allowing the situation to dictate how you’re responding, push back. Refocus how you choose to respond around the goal that you are trying to accomplish.

For example, if your business partner backs out of the new business you’ve been planning to start, that loss of manpower and capital could make you feel defeated and powerless. But the reality is that you are choosing to dwell on negatives that you can’t control.
So, what can you control?

If you’re really committed to starting your new business, you can choose instead to focus on alternative funding sources. You can talk to other friends, family, and colleagues about potential partnerships. You can choose to work on Plan B.

Another example is the investor who feels powerless as market volatility chips away at his nest egg over a quarter. No, you can’t control the natural disaster or political spat that’s giving the market fits right now. But you can choose to focus on your long-term purpose: a secure retirement for you and your family. That positive thinking and big-picture perspective could prevent a costly knee-jerk reaction.

3. Consider your values
One of the best ways to drive negative thinking from our reactions is to focus on the things that matter the most to us. Reconnecting our decision making to our values can lead to solutions that make life more fulfilling.

Work might be the most common source of challenges in our lives. And while no one loves absolutely everything about their job all the time, it’s worth considering how your job affects your sense of freedom. Do those 35 hours per week give you the financial resources to spend your free time doing what you want with the people you love? Are your skills and talents used in ways that make you feel like you’re making positive contributions? Does your employer have a mission bigger than profit that’s important to you?

If your answers are no, no, and no, you can choose to keep dragging yourself out of bed every Monday, resigned to the uninspiring week ahead. Or you can follow your values towards a more empowering choice. Consider a career change. Learn a new skill that will bolster your c.v. or line you up for a better job at your current employer.

If switching careers is really out of the question right now, choose to appreciate the parts of your job that you do well because of your unique skillset. And when you’re not working, make time for the hobbies, interests, and experiences that do fully engage your core values. Who knows? One day these pursuits might lead to exciting new opportunities for you and your family. If you’ve been committed to your values all along, you’ll be ready to make the right choice.